Monthly Archives: September 2012

Why the Stockton California Bankruptcy Will Cost the City Millions of Dollars

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The whole point in filing bankruptcy whether it is a corporation, individual or municipality like the city of Stockton, California is to obtain relief from overwhelming debts.  The process of reorganizing for many corporations and municipalities is extremely expensive though.  It is not necessarily the bankruptcy attorney fees that make the process expensive though.  Why is it so expensive then?

When a corporation or municipality files for bankruptcy protection the ripple effect of the filing is very broad and disrupts operations that are far reaching.  The automatic stay pursuant to section 362 of the Bankruptcy Code takes effect when the bankruptcy case is filed and stops any and all collection activities.

For example, the Stockton Police Officers Association (“SPOA”) recently filed a motion with the court to modify the automatic stay.  The SPOA had to hire a bankruptcy lawyer to help them of course.  Does Stockton owe the SPOA money?  No, but no entity wants to violate the stay and just in case it is good idea to seek relief from the automatic stay or modify the stay to make sure you are not violating the stay.

According to court documents the SPOA represents all persons currently employed in the ranks of police officer and sergeant in the Stockton Police Department.  The SPOA sued Stockton in state court in San Joaquin County after Stockton declared a fiscal emergency in 2010 and then changed the benefits and rights of SPOA members.  The automatic stay has stopped this litigation.  But there are disciplinary proceedings from grievances that are still pending.  The City of Stockton believes the disciplinary proceedings and any appeals of disciplinary actions are also stayed.  So the SPOA and the Stockton decided to modify the automatic stay to allow for some of the grievances to move forward to resolution and allow for back pay or other economic benefits to be paid the SPOA members.

This is why reorganizing debts in bankruptcy is so expensive.  Who would have thought that the filing of bankruptcy under chapter 9 of the bankruptcy code by Stockton would affect a grievance filed by a police officer a year and a half ago or longer?  There will be issue after issue that arises like this that must be dealt with by the bankruptcy court.  Each time Stockton’s bankruptcy lawyers fees will increase and the City of Stockton will have to pay that bill eventually.  It will just be a matter of time before the professionals in this bankruptcy case file fee applications for approval of their fees by the court.  I am going to roughly guess attorney fees will exceed $5 million for the City of Stockton alone, unless the case is dismissed for lack of eligibility.

Do Not Fall For the Forensic Audit or Pre-Litigation Fees Scam by Fraudulent Loan Modification Companies

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I have been telling clients for a couple of years now that you should not be paying any upfront fees for loan modification services.  That means nothing, zero and zilch.  It is illegal under California law.  It still happens though.  There are plenty of Housing and Urban Development (HUD) approved providers of loan modification services that help you for free and follow the laws.  Ask your local bankruptcy attorney for a referral to one of these HUD approved companies.

In California a loan modification company must be registered with the state as well:  “By July 1, 2009, any person or company who performs or promises or offers to perform the services of a foreclosure consultant must register with the Attorney General’s Office, post a $100,000 bond and receive a Certificate of Registration from the AG’s Office or go out of business. A foreclosure consultant is one who, for compensation, promises to stop or postpone a foreclosure sale, save a home from foreclosure, or do anything else set forth in Civil Code Section 2945.1.”

The horrible position of possibly losing a home and lack of integrity by loan modification companies is a dangerous combination.  What did unscrupulous capitalizers do?  They found ways to skirt California law and charge fees for other things like bogus forensic audits and pre-litigation education fees.  We have many clients describe to our bankruptcy lawyers their horrible stories about getting ripped off for thousands of dollars.

Recently the Consumer Financial Protection Bureau sued a southern California attorney for multiple violations of the Consumer Financial Protection Act of 2010 (“CFPA”).  Who is the Consumer Financial Protection Bureau?  It is an independent agency of the United States charged with regulating the offering and provision of consumer financial products or services under Federal consumer financial laws pursuant to 12 U.S.C. Section 5491(a).

§5491. Establishment of the Bureau of Consumer Financial Protection; (a) Bureau establishedThere is established in the Federal Reserve System, an independent bureau to be known as the “Bureau of Consumer Financial Protection”, which shall regulate the offering and provision of consumer financial products or services under the Federal consumer financial laws. The Bureau shall be considered an Executive agency, as defined in section 105 of title 5. Except as otherwise provided expressly by law, all Federal laws dealing with public or Federal contracts, property, works, officers, employees, budgets, or funds, including the provisions of chapters 5 and 7 of title 5, shall apply to the exercise of the powers of the Bureau.

The CFPA was passed in response to the widespread fraud that helped lead to the mortgage meltdown.  In this particular lawsuit the defendants allegedly violated Regulation O of the CFPA in how they marketed the sale of their mortgage assistance relief services.  According to court documents from the United State District Court, Central District of California, Case No. CV12-06147, attorney Chance Edward Gordon, doing business under a number of other names, promised loan modifications in exchange for an advance fee. The complaint filed against Gordon goes on to describe in detail how $2,500 to $4,000 was paid in advance by homeowners for loan modification services with no meaningful assistance ever received in return.  Hopefully we will see more of these lawsuits and speak to less people getting ripped off.